Texas Tax Burden Fell in 2011 as Economy Improved

Overall taxes as a share of Texas’ residents’ income fell from 2010 to 2011, from 7.9 percent to 7.5 percent, mainly due to the strength of the Texas economy and the fact that the Texas state legislature resisted calls from big government advocates to increase taxes during the 2011 legislative session–a session that was confronted with a challenging deficit.

The most basic measure of how much a given state taxes is the metric of the state and local tax burden as a share of state income. This measure takes into account the relative prosperity of a state and looks at how much a state actually taxes its residents.

For example, Alaska collects a lot in taxes (they collect the most taxes per capita of any state), but those taxes fall largely on oil that is exported to other states, hence, other people pay a large portion of Alaska’s tax burden resulting in Alaska having the 49th-lowest state and local taxes as a share of state income.

Texas ranks 47th in the new survey which measures tax burdens as of 2011. In 2010, Texas ranked 45th. Louisiana and Tennessee were ranked as taxing less than Texas in 2010, but they slipped behind Texas, likely due mainly to Texas’ strong economy boosting residents’ income at a quicker pace than the rate of additional tax revenues.

The national average of state and local taxes collected as a share of income fell from 9.9 percent in 2010 to 9.8 percent in 2011, again, mostly due to the weak economic recovery more than due to widespread tax cuts at the state level.

Comparing Texas to the its two largest peers, California and New York, shows that in 2011, California taxed 52 percent more of its state income than Texas, up from 42 percent more in 2010. New York, the state with the highest tax burden in the nation, taxed 68 percent more of the share of its income than did Texas in 2011, up from 62 percent more in 2010.

Not coincidentally, perhaps, the U.S. Census Bureau’s new, more comprehensive measure of poverty that takes into account the cost of living from state-to-state as well as the value of government benefits and taxation, shows that the true poverty rate in Texas from 2010 to 2012 was 16.4 percent, within the margin of error of the national average of 16 percent, while California’s poverty rate was 23.8 percent, the highest in the nation. New York State’s poverty rate was 18.1 percent. This shows that high taxes and more government programs aimed at the poor can’t compete with a dynamic economy that creates jobs that can sustain a family. Putting the poverty rate into perspective, for every 3 people in poverty in California, there are about 2 in Texas. Put another way, on a per capita basis, poverty in California is 45 percent more common than in Texas.

The Hon. Chuck DeVore is the Vice President of Policy at Texas Public Policy Foundation. Follow him on Twitter @chuckdevore